Famous Brands ready to stretch its expertise to leisure sector

By Time of article published May 20, 2014

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Nompumelelo Magwaza

After 20 years of strong growth, Famous Brands was ready to move cautiously into the leisure industry, chief executive Kevin Hedderwick said yesterday.

Speaking to Business Report after the restaurant franchisor released its annual results yesterday, Hedderwick said Famous Brands had decided to leverage its two best qualities: its strong core competencies and its debt-free status.

He said “phenomenal leadership and understanding of brands, manufacturing and logistics” were core competencies that underpinned “the ability to generate lots of cash and to pay off debt very quickly”, he said.

With these qualities, Famous Brands believed it could expand into the leisure industry.

“The types of markets that we probably think we can get into, although we will be very cautious about it, are hospitality, beverages, fast-moving consumer goods and – if we wanted to get brave – we might look into the food retailing space,” Hedderwick said.

“This is what has been occupying my mind going forward. We are about to embark on a new chapter in growth.

“We have had a 20-year track record of strong growth and how do we drive this business forward in the next five to 10 years without relying only on the food services space?”

Famous Brands, which trades under brands such as Steers, Wimpy and Wakaberry, grew its revenue 12 percent year on year to R2.83 billion in the year to February. Operating profit increased by 21 percent to R566 million, while its operating margin reached a record high of 20 percent, up from 18.5 percent last year.

Headline earnings a share for the period grew 20 percent to R4.06, while cash generated by operations, after changes in working capital, increased by 23 percent to what Famous Brands called “a healthy” R594m.

A final gross dividend of R1.70 a share was declared, bringing the total cash dividend to R3 a share for the 2014 financial year, an increase of 20 percent.

The group has 2 378 restaurants in South Africa and elsewhere in Africa as well as in the UK, Middle East and India.

Famous Brands plans to open 300 more restaurants in the year ahead.

Local operations increased revenue 13 percent to R538m with system-wide sales increasing 11.4 percent and like-for-like sales up by 5.8 percent.

“Solid performances were reported by our mainstream brands across the portfolio, while our recently acquired and emerging brands continued to gain traction in their respective markets and play an important role in bolstering the repertoire,” Hedderwick said.

In the rest of the continent, Famous Brands delivered an increase of 32.5 percent in system-wide sales while like-for-like sales grew 17.9 percent.

“We plan to open 41 new restaurants across the brand repertoire this year and enter Angola and Ghana, where we are currently not represented,” Hedderwick said.

Absa Investments retail analyst Chris Gilmour said Famous Brands already had expertise in food retailing, with some of its brands already on retail shelves. However, he could not see the group embarking on a large-scale move into the grocery space.

Gilmour added that the group could do exceptionally well in the hospitality and beverage industries.

“They could team up with self-catering hotels and have some of their restaurants next to these hotels and also serve food at big sporting tournaments, which could draw a huge brand equity,” he said.

Famous Brands shares gained 6c to close at R110 on the JSE yesterday.

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